Stocks fell more than 1 percent for a second day on Thursday after Federal Reserve Chairman Ben Bernanke outlined the start of a wind-down of stimuli that has been instrumental to the market's rally.
Bernanke said Wednesday the economy was expanding strongly enough for the Federal Reserve to begin slowing the pace of its bond-buying stimulus later this year.
His comments triggered selloffs in markets that have been supported by the Fed's $85 billion monthly asset purchases, including Treasuries and U.S. equities. The U.S. dollar rose, its strength continuing into Thursday's session.
"The market tends to overshoot and will continue to do so. We'll probably see an overreaction to this," said Art Hogan, managing director at Lazard Capital Markets in New York.
Even as Bernanke painted a rosier picture of the U.S. economy than some expected, weaker factory output in China and a continued recession in the euro zone kept investors concerned about global growth, adding to pressure on stock markets worldwide.
The number of Americans filing new claims for unemployment benefits rose more than expected last week, but not enough to signal a material shift from the recent pace of moderate job growth.
"The data-dependant part (of Bernanke's remarks) should be seen as a positive," said Hogan. But concern about Fed policy "combined with the long-standing concern of a Chinese slowdown" weighed on stock markets.
The Dow Jones industrial average fell 211.3 points or 1.4 percent, to 14,900.89, the S&P 500 lost 22.8 points or 1.4 percent, to 1,606.13 and the Nasdaq Composite dropped 42.18 points or 1.23 percent, to 3,401.02. London’s FTSE 100 index fell more than 2.5 percent, while Japan’s Nikkei 225 lost 1.74 percent.
The S&P 500 dropped below its 50-day moving average, a level it has breached at the close on only one day this year, in mid-April. It found support near 1,606, which is the 23.6 percent Fibonacci retracement of the index's sharp move from mid November to May 22.
Specialty drugmaker Forest Laboratories Inc is among a handful of companies interested in bidding for Irish drugmaker Elan Corp Plc, two people familiar with the situation said. Elan's Irish shares were up 5 percent but its U.S.-traded shares shed 0.3 percent to $14.11, pressured by a rally in the greenback.
Walt Disney shares fell 1.8 percent to $63.16 after Goldman Sachs removed the stock from its "conviction buy" list.
Shares of Ebix Inc lost 42.5 percent to $11.35, a day after the insurance software provider said that it and an affiliate of Goldman Sachs would cancel their planned merger after U.S. regulators started an investigation into allegations of misconduct at Ebix.
Resales of U.S. homes rose in May to the highest level in 3-1/2 years and prices jumped, a sign that the housing sector recovery is gathering steam and could give the economy a significant boost this year.